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SCO's February 11 SEC S-3 Filing
Sunday, February 15 2004 @ 06:50 PM EST

SCO's got a new SEC filing, an S-3 dated February 11. There are some interesting elements. What leaps off the page, to me, is that they seem to be gearing up to sue end users soon, and they are expecting serious backlash from their DMCA strategy. The feeling I get is they are suiting up for battle, and soon. McBride said in the Harvard appearance they'd file against some users around February 18, and after reading the S-3 financials, I now believe they actually will.

Note the foreshadowing here:

"Additionally, we have begun notifying selected Linux end users in writing of violations we allege under the Digital Millennium Copyright Act related to our copyrights contained in Linux.

"As a result of our action against IBM and our SCOsource initiatives to protect our intellectual property rights, several participants in the Linux industry and others affiliated with IBM or sympathetic to the Linux movement have taken actions attempting to negatively affect our business and our SCOsource efforts. Linux proponents have taken a broad range of actions against us, including, for example, attempting to influence participants in the markets in which we sell our products to reduce or eliminate the amount of our products and services they purchase from us. We expect that similar efforts likely will continue. There is a risk that participants in our marketplace will negatively view our action against IBM and our SCOsource initiatives, and we may lose support from such participants.

"The success of our UNIX business will depend on the level of commitment and certification we receive from industry partners and developers. In recent years, we have seen hardware and software vendors as well as software developers turn their certification and application development efforts toward Linux and elect not to continue to support or certify to our UNIX operating system products. If this trend continues, our competitive position will be adversely impacted and our future revenue from our UNIX business will decline. The decline in our UNIX business may be accelerated if industry partners withdraw their support from us as a result of our SCOsource initiatives and in particular any lawsuit against end users violating our intellectual property and contractual rights."
[emphasis added]

The S-3 is mainly about the stock and the various risks you should be aware of. It sounds to me like a company committing suicide by trial. Or maybe a company giving it all they've got in one final push, do or die. They mention all the court battles they are involved in, including IBM, Red Hat, Novell, the proposed actions against end users, the Germany matter, complaints filed in Australia, Austria and Poland. There seems to be a lot of talk about "liquidation events". Of course, this is the risks section, where you are supposed to list all the possibilities, but liquidation?

I checked Novell's most recent 10K, and liquidation isn't a risk even mentioned. They don't sound too worried about the SCO lawsuit, either. Here is how they describe the lawsuit with SCO:

"In January 2004, the SCO Group, Inc. (“SCO”) filed suit against us in the Third Judicial District Court of Salt Lake County, State of Utah. . . . We believe that we have meritorious defenses to these claims and intend to vigorously defend ourselves in this suit. Although there can be no assurance as to the ultimate disposition of the suit, we do not believe that the resolution of this litigation will have a material adverse effect on our financial position, results of operations or cash flows. . . .

"SCO filed legal action in March 2003 against IBM alleging misappropriation of trade secrets, tortious interference, unfair competition and breach of contract relating to IBM’s sale of products based on the Linux operating system. . . . It is possible that SCO’s actions may reduce general demand for Linux and Linux related products and services. In this event, demand for our Linux products and services could decrease, thereby reducing revenue."
[emphasis added]

In contrast, here's how dire SCO's worst case scenario is in the IBM lawsuit:

"If we do not prevail in our action against IBM, or if IBM is successful in its counterclaim against us, our business and results of operations could be materially harmed. The litigation with IBM and potentially others could be costly, and our costs for legal fees may be substantial and in excess of amounts for which we have budgeted. Additionally, the market price of our common stock may be negatively affected as a result of developments in our legal action against IBM that may be, or may be perceived to be, adverse to us." [emphasis added]

And as for the Novell case, here is SCO's sum up of that potential:

"Notwithstanding our assertions of full ownership of UNIX-related intellectual property rights, as set forth above, including copyrights, and even if we are successful in our legal action against Novell, the efforts of Novell and the other Linux proponents described above may cause Linux end users to be less willing to purchase from us our SCO IP licenses authorizing their use of our intellectual property contained in the Linux operating system, which may adversely affect our revenue from our SCOsource initiatives. These efforts also may increase the negative view some participants in our marketplace have regarding our legal actions against IBM and Novell and our SCOsource initiatives and may contribute to creating confusion in the marketplace about the validity of our claim that the unauthorized use of our UNIX source code and derivative works in Linux infringes on our copyrights. Increased negative perception and potential confusion about our claims in our marketplace could impede our continued pursuit of our SCOsource initiatives and negatively impact our business. Additionally, if we fail in our lawsuit against Novell, the negative perception and confusion in our marketplace about our intellectual property claims likely would increase significantly, and the effectiveness of our SCOsource initiatives could be materially harmed."[emphasis added]

As for the end user lawsuits, those too, they acknowledge, could send their UNIX business tanking even further:

"We may lose the support of industry partners leading to an accelerated decline in our UNIX products and services revenue.

"Our SCOsource initiatives, particularly lawsuits against end users violating our intellectual property and contractual rights, may cause industry partners, developers and hardware and software vendors to choose not to support or certify to our UNIX operating system products. This would lead to an accelerated decline in our UNIX products and services revenue and would adversely impact our results of operations and liquidity."
[emphasis added]

The Red Hat case could harm them too they say:

"If Red Hat is successful in its claim against us, our business and results of operations could be materially harmed. "[emphasis added]

Then there is the Australia info, not that it seems up-to-date:

"The Australian Competition and Consumer Commission ('ACCC') contacted us in August 2003 regarding complaints it has received concerning our intellectual property claims and our statements regarding the need for commercial Linux users to obtain a UNIX license. The ACCC further informed us that it has not made any decision to pursue the complaints it has received or determined what, if any, action it will take. We have hired counsel in Australia and responded to the ACCC's request for information. We have not heard from the ACCC and it is unknown if future action will be taken." [emphasis added]

Oh, don't forget Germany:

"Several entities in Germany have obtained temporary restraining orders in Germany precluding our German subsidiary, from making statements in Germany that, in substance, disparage Linux, or entities involved in the Linux industry, or implicate Linux as infringing our intellectual property rights. SCO GmbH has received an administrative fine of 10,000 Euros for a technical violation of one of the temporary restraining orders. We are currently negotiating with the various claimants in Germany over the temporary restraining orders and are evaluating whether we will appeal the administrative fine. Informal complaints similar to those raised in Germany have been received from companies in Austria and Poland. We have responded to those complaints. It is not known if those complainants will take future action." [emphasis added]

If that isn't enough, what about this sentence?

"In addition to these above-mentioned actions, other regulators or others in the Linux community may initiate legal actions against us, all of which may negatively impact our operations or future operating performance."

If it's hurting your business so badly and has the capability to finish it off, why are they doing all this, pray tell?

I thought it would be useful to look at some other companies and see if maybe I was reading too much into this language. Did others describe their risks in such apocalyptic terms? Maybe this is normal in the risks section, I thought. So, next I checked Red Hat. No liquidation event is even listed as a possibility. Here is what they say about their lawsuit against SCO in their most recent 10-Q:

"Commencing August 4, 2003, the Company filed suit against The SCO Group, Inc. ('SCO') in the U.S. District Court for the District of Delaware (Civil Action No. 03-722 SLR) (the 'Action') seeking a declaratory judgment that the Company is not infringing any of SCO’s intellectual property rights. In addition, the Company has asserted claims against SCO under Delaware and federal law, including deceptive trade practices, unfair competition, tortious interference with prospective business opportunities, trade libel and violations of the Lanham Act. The Company contends that SCO has made false and misleading public statements alleging that software code, in which SCO claims to own copyrights and trade secrets, was misappropriated and incorporated into the Company’s product and has threatened legal action. On September 15, 2003, SCO filed a Motion to Dismiss contending, among other things, that there exists no actual controversy that would warrant the declaratory judgment the Company seeks. The Company filed an opposition to the Motion to Dismiss and intends to vigorously prosecute the Action. At this early stage of the proceedings no assurance can be given as to the outcome." [emphasis added]

See the difference in the tone? In contrast, SCO's filing sounds like a letter by a soldier about to enter a war zone. He hopes to make it, but no guarantees, and just in case, here's where the key to the safe is kept and you'll find the will in the middle drawer at the office.

Meanwhile, how about IBM? IBM had this to say in their most recent 8K about Linux:

"Linux also continued to drive zSeries demand.

"As an example, the City University of New York, the biggest urban university in the US, recently purchased a high-end z990 with 15 processors dedicated to Linux—the Linux equivalent of nearly 5,000 MIPS. The Linux workload will include e-mail, voice mail, calendaring and wireless support for two hundred and sixty thousand handheld devices.

"IBM's zSeries are an integral part in our customers' restructuring into an on demand environment. . . .

And Linux revenue on iSeries had strong growth, up 10% sequentially from the 3rd quarter."

Their UNIX business is doing well too, they report. In contrast, here is SCO's gloomy report on their UNIX business:

"Our UNIX products and services revenue has declined in each of the last four years. In our results of operations, we recognize revenue from agreements for support and maintenance contracts and other long-term contracts that have been previously invoiced and are included in deferred revenue. Our deferred revenue balance has declined from $10,056,000 as of October 31, 2002 to $5,501,000 as of October 31, 2003, and this decline in deferred revenue may continue into future quarters, which may have a negative impact on our operating system platform products revenue. . . .

We initiated the SCOsource licensing effort in January 2003 to review the status of UNIX licensing and sublicensing agreements. This effort resulted in the execution of two significant vendor license agreements during fiscal year 2003 and generated $25,846,000 in revenue."
[emphasis added]

Despite bringing in $25,846,000 in SCOsource revenue and only $5,501,000 in Unix "deferred revenue," a steep decline from the year before (this would be customers running for the hills when their contracts end, maybe?), SCO describes their "core" business as being sales of Unix, not SCOsource:

"Our profitability in fiscal year 2003 resulted primarily from our SCOsource licensing initiative. If we do not receive SCOsource licensing revenue in future quarters and our revenue from the sale of our operating system platform products and services continues to decline, we will need to further reduce operating expenses to maintain profitability or generate positive cash flow. . . .

"We generate revenue from two sources: sales of our UNIX-based products and services and licenses of our UNIX technology through our SCOsource initiatives. Our core business is to sell and service our UNIX operating system and related software products to small-to-medium sized businesses and branch offices and franchisees of Fortune 1000 businesses. Our main products that drive the majority of our UNIX revenue are OpenServer and UnixWare."
[emphasis added]

So their core business is selling Unix? But they don't make most of their money from their core business? Why not just say that SCOsource is now their core business? By the time you get to the financials, it sounds to me like they are going for broke with the DMCA end user lawsuits. If it works, fine. In any case, here's the setup:

"Risks associated with the potential exercise of our options outstanding.

        "As of February 1, 2004, we have issued and outstanding options to purchase up to approximately 3,504,800 shares of common stock with exercise prices ranging from $0.66 to $28.00 per share. The existence of such rights to acquire common stock at fixed prices may prove a hindrance to our efforts to raise future equity and debt funding, and the exercise of such rights will dilute the percentage ownership interest of our stockholders and may dilute the value of their ownership. The possible future sale of shares issuable on the exercise of outstanding options could adversely affect the prevailing market price for our common stock. Further, the holders of the outstanding rights may exercise them at a time when we would otherwise be able to obtain additional equity capital on terms more favorable to us.

"The holders of shares of Series A-1 Convertible Preferred Stock have preferential redemption rights and rights upon liquidation that could adversely affect the holders of our common stock.

        "If the selling stockholders choose not to convert shares of Series A-1 Convertible Preferred Stock, then, as holders of shares of Series A-1 Convertible Preferred Stock, among other rights, they will be entitled to require us to repurchase for cash all the shares of Series A-1 Convertible Preferred Stock held by them at a premium price if any of several redemption trigger events occurs. Our redemption obligation may be triggered by events that are beyond our control. These redemption provisions, if triggered, would require us to redeem the then-issued and outstanding shares of our Series A-1 Convertible Preferred Stock for cash.

"Additionally, as stated elsewhere in the registration statement, the Certificate of Designation for the Series A-1 Convertible Preferred Stock provides that the number of shares of our common stock issuable upon the conversion of shares of Series A-1 Convertible Preferred Stock is limited to 2,863,135 shares in the aggregate, notwithstanding that the holders of shares of Series A-1 Convertible Preferred Stock may otherwise be entitled to receive more shares of common stock upon conversion based on the applicable conversion price. If the number of shares of common stock issuable to the holders of shares of Series A-1 Convertible Preferred Stock upon conversion is limited in this manner, then we may be required by the holders of such shares to redeem for cash the number of shares of Series A-1 Convertible Preferred Stock that were not issuable upon conversion as a result of such limits on conversion. If we were required to pay cash to the holders of shares of our Series A-1 Convertible Preferred Stock for any reason, it could have a material impact on our liquidity, which may require us to obtain additional sources of cash to sustain operations and may negatively impact the holders of our common stock.

"Further, the holders of shares of our Series A-1 Convertible Preferred Stock will be entitled to receive a preferential distribution of our assets prior to any distribution to our holders of common stock upon a liquidation, dissolution, winding up or other change in control transaction in which we sell all or substantially all our assets or merge or consolidate or otherwise combine with another company or entity. Upon the occurrence of a liquidation event, the holders of Series A-1 Convertible Preferred Stock will be entitled to receive the greater of:
  • the value of the shares of Series A-1 Convertible Preferred Stock held by them determined by multiplying the closing sale price of our common stock on the Nasdaq SmallCap Market on the date of the liquidation event by the number of shares of common stock into which the preferred shares could be converted at the time of the liquidation event; or
  • up to $50,000,000, the aggregate purchase price paid by the selling stockholders in our October 2003 private placement, plus eight percent of that amount less the amount of any dividends paid to the preferred stockholders in the calendar year in which the liquidation event occurs.
    "Depending on the amount of assets we have available for distribution to stockholders upon a liquidation event when shares of Series A-1 Convertible Preferred Stock remain outstanding, we may be required to distribute all such assets or a portion of such assets that exceeds the preferred stockholders' pro rata ownership of our common stock assuming full conversion of their preferred shares into common stock, which could eliminate or limit the assets available for distribution to our common stockholders. Our potential obligation to pay to the law firms representing us in our efforts to establish our intellectual property rights a contingent fee of 20 percent of the proceeds we receive from a sale of our company, subject to certain limitations, could also contribute to eliminating or limiting the assets available for distribution to our common stockholders."
[emphasis added]

I'm not a financial expert. Far from it. I don't even invest, or gamble, so I'm probably missing plenty, but all I see is risk, risk and more risk. I see what's in it for holders of Series A-1 Convertible Preferred Stock, but what's in it for the common shareholders?

With such bleak financials from their "core" business, it seems logical that they will have to go forward to try to get money from end users or try to inspire someone to acquire them. So, when they say they really will sue end users on February 18, I now believe them.

Some have suggested that this whole lawsuit thing was conceived as just an exit strategy, that the goal was to be acquired, and the strategy to be so annoying, someone would buy them:

"On the other hand, he [Moglen] says, the suit against Novell is also a tacit admission by SCO that ownership of the code is uncertain. Thus, the firm's demand from Linux users to pay license fees has no teeth and that keeps the door open for continued Linux adoption.

"There is no question that SCO is fighting for its life, especially in terms of the value of SCO's stock. Moglen suggests an erosion of revenue will catch up with SCO on Wall Street. Even techies like Bruce Perens assert that SCO's original suit against IBM was related to an investor exit strategy. 'Here's a company that was at 60 cents stock price. As a result of the suit, ... their stock price [climbed] to over 10 dollars,' he said.

"Legal experts tend to agree with Moglen. And the industry perception of Linux users is not consistent with the notion that they are conniving freeloaders with eyes the size of pie plates once they see they can get away with using pieces of Unix code, within Linux, for free.

"Even if SCO prevails in court, it is unlikely the company will win large punitive damages. Software experts predict that any offending Unix code would be replaced in a matter of a day and released weeks later, leaving SCO right where it started."

That is from NewsFactor's Top Tech News. You might find this article about the poor sad sack small investor of interest as well.

So. February 18, then.

If I were a commercial end user, being sued by SCO, I believe I'd instruct my attorneys to stall, in hopes SCO might just keel over dead from insufficient cash flow to the head.

That's a joke, folks. If you really get sued, ask your lawyer what to do.


  


SCO's February 11 SEC S-3 Filing | 253 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
End user law suits
Authored by: MeaninglessNick on Sunday, February 15 2004 @ 07:20 PM EST
lawsuits against end users violating our intellectual property and contractual rights
Well, that suggests they plan to sue a customer. Unless they think they have contractual rights with people they have no contract with. Which would not surprise me in a press release, but would surprise me a bit in an SEC filing.

[ Reply to This | # ]

SCO's February 11 SEC S-3 Filing
Authored by: brenda banks on Sunday, February 15 2004 @ 07:21 PM EST
anyone keeping tabs on airline ticket sales?
and has all the businesses that were contacted notified the AG of their
state.AGs love big cases that help their name right before election times.
i would be calling them so that they are alerted and have a little time to
investigate the facts.
also a call to your representative to find out what you can do if someone files
a wrongful dmca?
everyone i could think of would be very informed by now especially my lawyer



---
br3n

irc.fdfnet.net #groklaw
"sco's proof of one million lines of code are just as believable as the
raelians proof of the cloned baby"

[ Reply to This | # ]

SCO's February 11 SEC S-3 Filing
Authored by: Anonymous on Sunday, February 15 2004 @ 07:30 PM EST
In my humble opinion, as long as they don't hold a single copyright or patent on
their software any legal action against any linux user is like the big bad wolf
trying to blow down the house made of bricks. The only ones that could suffer a
legal action are SCO's own Unix users that are using linux which they may claim
are breaking their license agreements with SCO. I wish them luck NOT!

[ Reply to This | # ]

SCO's February 11 SEC S-3 Filing
Authored by: shaun on Sunday, February 15 2004 @ 07:31 PM EST
Such dire damaging statements in one own investor portfolio cannot bare well. I
do believe SCO has see the tail of their plane catch fire and are desperately
trying to keep the nose up as they go crashing to the ground. Unfortunately they
are also in a spin that is uncontrollable.

Another lawsuit will not do them any good. Any one who gets hit with one will
have a lot of players in their corner, The OSDL fund and the Red Hat fund will
be their for their assistance if they need it etc.

SCO is in big trouble.

--Shaun

[ Reply to This | # ]

SCO's February 11 SEC S-3 Filing
Authored by: julian on Sunday, February 15 2004 @ 07:35 PM EST
I vaguely remember that the DMCA requires that the infringement papers be filed
under penilty of perjury. With three law suits involving SCOG copyrights and/or
other ip who will have the audacity to claim in court that they own copyrights
to the OS on someones unsee server. Will Darl risk adding perjury to his list of
crimes?

---
John Julian

[ Reply to This | # ]

Well, at least they realize
Authored by: Anonymous on Sunday, February 15 2004 @ 07:37 PM EST
Well, at least SCO realizes their business could be adversely affected by all of
this. I'll go out on a short limb here, and speculate their business will be
adversely affected no matter the outcome of any trial.

They're a dying, desparate company.

Lawsuits against end users, I'm afraid is going to spread them thinner than they
realize. How many lawsuits can they maintain? Who in their right mind would
settle with SCO while other cases are pending?

[ Reply to This | # ]

Any point in complaining to the bar associations
Authored by: AveryAndrews on Sunday, February 15 2004 @ 07:38 PM EST
of any lawyers involved in the filing of any end-user lawsuits, on the grounds
that the attourneys are knowingly participating in extortion and securities
fraud, and casting discredit on the profession and their local bar association?

[ Reply to This | # ]

SCO is taking one day at a time
Authored by: Anonymous on Sunday, February 15 2004 @ 07:47 PM EST

I dont think that they have done any long term planning. The 10K might hint
that they will sue an end user soon. But their situtation is changing too
rapidly. What sounded like a great idea 2 days ago might be a real stupid move
today.

[ Reply to This | # ]

Just trying to protect themselves from shareholder lawsuits
Authored by: cacruden on Sunday, February 15 2004 @ 07:47 PM EST
I read that a few days ago, all I got from it was that they were aware that if
things don't go there way (which seems like a longshot now), that they would be
the target of shareholder lawsuits..... and this was a CYA statement.

[ Reply to This | # ]

Would You Pay?
Authored by: Anonymous on Sunday, February 15 2004 @ 08:00 PM EST
So SCO are gearing up to go after end users are they? That could be interesting. I wonder what pretext they will use?

They have already dropped at least one of their claims against IBM [I believe] and currently the most contentious issue seems to be copyright. Yet from what I read, Novell and SCO are both claiming title to the code, both have filed copyright claims and are both gearing up to go the distance in court.

So if you were a company that received a SCO demand for payment, would you roll over and cough up the dollars, or would you simply instruct your lawyer to help you handle this? For example, your defense could be simple. You could offer to pay the winner of the court case... You might be asked to deposit some funds with the court as proof of intention, but I don't see that a company should feel forced to pay anything to SCO.

Why take this odd line? Simple. I'm not suggesting you flip SCO the bird, just pointing out that there might be ways of staying just inside the law, but without putting cash into SCO's fighting fund. As the article says, if their reserves dry up before this gets to court, it goes nowhere. IANAL, so I have no idea if that would be legal or not, but I don't think I'd be happy about being bullied by a company with this kind of attitude.

One reason I think that this might be kinda fun, is that I'd love to know what happens when SCOs cash reserves run dry. See, Microsoft stepped in and funded SCO to the tune of [I think] $50 Million to fight this little battle. Is that enough publicity for Redmond, or would they spend another $50 Million for another year's Anti-Linux FUD? Could be cheap advertising for them for all I know.

And another thing - SCO can claim all they like and fight all they like in the US and certain US-friendly foreign nations, but that in no way indicates that they will get an easy ride outside the US. Proportionally, use of Linux is global now. Several European nations, Australia, China and Far East countries are already publicly rejecting SCOs claims.

SCO seem to want to have all things all ways. Licence revenues without proof of ownership; damages for copyright infringement without proof of infringed code; sight of IBMs entire AIX operating system source without opening their own. Does anyone think they are behaving rationally? No? Then I quote Sherlock Holmes, quintessentially British Detective, who said something along the lines of this:- "Reaching the truth is merely the task of discarding the impossible. Once this is done, whatever is left, no matter how improbable, is that truth."

So if SCO have nothing to gain from this current adventure, then their stated objectives might not be the real ones. We have to look further, to dig deeper, to uncover their real motives.

[ Reply to This | # ]

Sue, Sue, Suicide
Authored by: Anonymous on Sunday, February 15 2004 @ 08:10 PM EST
SCO's mission becomes more and more similar to a suicide one. It doesn't seem to
care one iota for its current business or current customers (or future
customers, for that matter). It doesn't even seem to care about the lawsuits
anymore (at least the language in the SEC filing pretty much boils down to:
"Everything we do will probably kill us").

One wonders if all of SEC's stock holders are happy with that mission...

[ Reply to This | # ]

  • SCO's new distro - Authored by: Anonymous on Monday, February 16 2004 @ 04:50 AM EST
    • SCO's new distro - Authored by: Anonymous on Monday, February 16 2004 @ 08:25 AM EST
SCO suing an end-user?
Authored by: Anonymous on Sunday, February 15 2004 @ 08:11 PM EST
Oh please. I'll believe it when I see it. I know their latest filing is
severe, but it is also the truth. Didn't they go through a hiring process for
somebody who actually had a clue about SEC filings recently? In response to one
of PJ's articles where she pointed out that several big things were missing in
their previous SEC filings?

So I don't think this new filing means that SCO is finally prepared to sue. I
think it means that they hired somebody with a clue who pointed out how insanely
unlawful it is to misrepresent legal risks to your shareholders.

IANAL, but if someone can please answer this question: If SCO sues an end user,
don't the following things happen:

A) Red Hat's suit suddenly gains all kinds of new merit;
B) All the copyright holders to Linux can now sue SCO for violating the terms
of the GPL;
C) Can preventitive suits ala Red Hat's be filed by other Linux end users, once
one is formally sued?

It's not just suicide, it's inviting overnight slaughter. If they want the IBM
case to drag out as long as possible, and it seems clear that they do, then
they'll avoid suing end users, period.

Not that they're living in consensus reality or anything...

[ Reply to This | # ]

SCO's February 11 SEC S-3 Filing
Authored by: garbage on Sunday, February 15 2004 @ 08:14 PM EST
A comparison of previous to current SEC filing show that they removed a
reference to a specific 'mid February' as far as I can recall.

It's now just 'we will soon' or words to that effect.

It's less specific.

Of course they also tinkered with and made hundreds of other small changes.

[ Reply to This | # ]

SCO's February 11 SEC S-3 Filing
Authored by: Anonymous on Sunday, February 15 2004 @ 08:25 PM EST

Being that Novel is claiming that SCO doesn't even own
the copyrights to UNIX and the fact that SCO has yet to
prove that there is ANY code in Linux that they have
rights to, wouldn't it be suicide to sue end users prior
to winning one of their other cases?

It sounds to me like maybe they want to bully some money
out to end users to help prevent their money from
running out while the pursue the IBM and Novel cases.

[ Reply to This | # ]

I don't think they'll sue
Authored by: Anonymous on Sunday, February 15 2004 @ 08:32 PM EST
They've always claimed that they'd sue an end user, and they've yet to do that. Nothing's really changed on this front.

My feeling is the dire predictions in this SEC filing are insurance against shareholder lawsuits for McBride and his cronies. When all the sound and fury of idiot SCO's tale is over and SCO and maybe Canopy is liquidated, Darl can point to this SEC filing and say "We warned you".

[ Reply to This | # ]

fake, hand off, run it out of bounds.
Authored by: phrostie on Sunday, February 15 2004 @ 08:36 PM EST
just my .02USD, but Darls tactics so far have been to fake a long bomb(pass down
field) then hand off the ball and run it out of bounds. this keeps them in the
press, but they never commit to the big play(copyrights violations). even with
IBM they droped the trade secrets claim, they won't show the judge the SysV
code. but they need another play quick so that people don't have time to
realize that they have nothing. even with novell they were saying that they
were going after novell for one thing(copyrights and contracts?) then it turns
out to be another(slander of title. seems they want everything but to really
prove it's theirs.

question is how do you fake going after a enduser so that you still don't have
to prove anything, but get all the same press as if you did.

answer that and you have their next play. we'll call it the quaterback sneak.

IANRASF(I Am Not Really A Sports Fan)


---
=====
phrostie
Oh I have slipped the surly bonds of DOS
and danced the skies on Linux silvered wings.
http://www.freelists.org/webpage/cad-linux

[ Reply to This | # ]

SCO's February 11 SEC S-3 Filing
Authored by: dodger on Sunday, February 15 2004 @ 08:47 PM EST
If SCO goes after an end user for license fees on Linux,
it would open them up to lawsuits from all GPL copyright
holders, including IBM; doesn't it?

Are you really sure they want to do that?

[ Reply to This | # ]

SCO's February 11 SEC S-3 Filing
Authored by: prayforwind on Sunday, February 15 2004 @ 09:03 PM EST
I will be suprised if they sue an end user; wouldn't this be barratry? I'm
thinking if asked "thought you were going to sue someone" this would
be their spin: "We did sue... Novell"

[ Reply to This | # ]

We do not have a history of profitable operations
Authored by: Gruntmaster6000 on Sunday, February 15 2004 @ 09:05 PM EST
Seems to me that the first line under Risks Related to the Business would scare
off most sane investors. Of course, that may be an oxymoron. It also speaks
volumes about the thought process behind SCOSource. And that could also be an
oxymoron.

[ Reply to This | # ]

SCO's February 11 SEC S-3 Filing
Authored by: Anonymous on Sunday, February 15 2004 @ 09:21 PM EST
I think there would be a large list of very negative outcomes for SCO and very
little positive if SCO were to file a lawsuit against an end user.

1. Getting involved in another lawsuit will cause attorney fees to drain their
limited cash even faster
2. The lawsuit will likely take years to even go to trial, much like the IBM
suit. Since SCO must win the Novell lawsuit first (itself years away from
beginning, much less ending) to secure undisputed System V copyrights, any end
user lawsuit would probably have to be put on hold until the end of any appeals
in the Novell suit.
3. Unless an end user is distributing the Linux kernel, they are not guilty of
copyright infringement. Copyright law governs copying and not use of code.
Section 117 of copyright law also specifically excludes installing and running
software from being infringement.
4. The money that they can get from one company for unintentional copyright
infringement is limited and likely less than their attorney fees in many if not
most cases. Lack of registered copyrights limits awards to actual damages, which
are likely to be minimal or negligible. Even with registered copyrights, damages
for unintentional copying are severly limited.
5. SCO's failure to mitigate damages since at least May 2003 limits or
eliminates any damages they can collect
6. SCO themselves distributing any infringing code in their own Linux products,
especially under the GPL, limits or eliminated any damages they can collect
7. In the event that there really is SCO-owned code in the Linux kernel, SCO
will be forced to document any infringing code and prove their ownership, which
will allow it to be removed or replaced
8. It will increase ill will toward SCO from a greater number of companies and
individuals, including their own customers, who will likely abandon SCO in
significant numbers
9. The act of filing a large number of frivolous lawsuits may be used against
SCO and its executives in a shareholder lawsuit at a later date

[ Reply to This | # ]

Deferred Revenue
Authored by: Ruidh on Sunday, February 15 2004 @ 09:24 PM EST
Deferred Revenue is an accounting concept. When a company receives cash which is
intended to reimburse them for future services, accounting rules require that
they defer that revenue and recognize it over the period for which they will be
providing services.

This is accomplished by recognizing a liability called Deferred Revenue. Over
time they reduce the value of this liability (reducing the value of a libility
results in income on the income statement) and recognize the revenue they
received earlier, but could not earn.

SCO is referring to the value of this liability when they say it's gone down
from 10 million to 5 million. That also means that they've recognized 5 million
of this in their income statements and that they have another year or so of
amortization before they run out of deferred revenue to recognize.

When a company is growing, deferred revenue tends to increase over time as they
sell more long-term contracts requiring this kind of accounting. When a company
runs its deferred revenue down to zero, it means that they haven't sold a
long-term contract in many years and that their income statements are not going
to have this kind of support in the future.

It's just another piece of evidence that SCO is a dying company which has been
pushed to desperation in order to avoid bankrupcy. Sadly, it seems as if they
have managed to push bankrupcy off for at least a few more quarters.

[ Reply to This | # ]

SCO's February 11 SEC S-3 Filing
Authored by: Anonymous on Sunday, February 15 2004 @ 09:25 PM EST
To be fair to MicroSCOft, their reference to liquidation relates to the fact
that they were teetering on the edge of bankruptcy at the time that Gates
contributed 20 million to their anti-Linux war-chest and that cash is running
out and therefore they`d be back at square one (teetering on the verge of
insolvency) if their new approach to business, lawsuits, does not pan out.

What is interesting though is the possibility that McBride and Gates may well
have made a secret deal whereby in return for McBride carrying the anit-Linux
ball, MS has secretly agreed to purchase the detritus left afloat after the good
ship Lollipop sinks under the weight of its own lawsuits. Wanna bet Gates has
his eye on just such a future buyout of SCO`s UNIX assets by MS?


H0B0

[ Reply to This | # ]

SCO "... suiting up for battle ..."
Authored by: Anonymous on Sunday, February 15 2004 @ 09:28 PM EST
SCO's "... suiting up for battle ..."

It looks like SCO's "Battle of the Bulge."

lvteacher

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Terror tactics?
Authored by: HPNpilot on Sunday, February 15 2004 @ 09:44 PM EST
I hate to make this analogy, for I do not want to in any minimize al Queda and their ilk, but I do see some parallels here.

In both cases there is an organization which is attacking innocent bystanders to attempt to make a point about their beliefs and for their own benefit. In both cases the organization is willing to commit acts up to and including suicide. In both cases the organization is preaching about the greater good and how their way is necessary and other ways are completely wrong and a danger. And in both cases the organization is using our freedoms against us (in SCO's case it is our court system).

The positioning they seem to be setting up does seem like one borne of frustration. The court system is to some degree a crap shoot and if they have enough irons in the fire, so to speak, there is some chance they will find some valid point somewhere and get a ruling in their favor. They really do not care whatsoever about what damage or hardship they cause to others, and it isn't even "personal;" all they care about is money, getting their money out of a company that is spiraling into the ground due to mismanagement relating mainly, IMHO, to inflexibility of their business model and not understanding how to work with the new prevailing industry direction.

[ Reply to This | # ]

so Darl's closing remarks
Authored by: shareme on Sunday, February 15 2004 @ 09:53 PM EST
So Darl's closing remarks at Harvard did indicate the true motivation for the
lawsuit actions to get moeny for a fiale dbusienss rather than add value..

Given that the copyrigth law doe snto allow for suing of end users for an
author's actions of infringement can SCO Group be penalized under the Frivilous
lawsuit definition?

and what liabilities doe Canpoy assume if it continues to alow its child
corporation, SCO Group, to continue this farse?



---
Sharing and thinking is only a crime in those societies where freedom doesn't
exist.

[ Reply to This | # ]

SCO's February 11 SEC S-3 Filing
Authored by: RSC on Sunday, February 15 2004 @ 10:11 PM EST
The whole DMCA bit interests me. It sounds like SCO are going to put another
nail in it's coffin. With the RIAA and now SCO bringing the DMCA into sharp
focus I get the feeling the DMCA as it currently stands is not long for this
world.

In particular, as mentioned in the FP, it appears SCO is going to use it to sue
it's own customers. If this is the case, how quick will the US consumers start
avoiding companies with letigious histories for fear of getting sued. MS comes
to mind, with the BSAA just waiting to see if SCO is sucessful, how quick would
they jump onto the band wagon.

All I see coming out of this fiasco is either the death of the DMCA, or
companies losing customers because of consumer jitters.

I am suprised that SCO would even try this course of action, if anything it will
drive more of their customers away.

Suicide via DMCA. Perhaps a chapter title for your book PJ. :)

RSC


---
----
An Australian who IS interested.

[ Reply to This | # ]

Enderle, Didio, Lyons, Skiba will be ecstatic
Authored by: Anonymous on Sunday, February 15 2004 @ 10:25 PM EST
The Fab Four will add up SCO's claims and enter them into this year's expected
revenues. After the initial lawsuits, they will speculate about who's next, and
enter those into this year's expected revenues.

After that, they'll raise SCO's target price to, say, $75. (Or, you can create
an office pool; write down any number over $50 and throw the slips into a hat.
The highest number gets a free subscription to the Didio report.)

The clueless press will lap it up. (Oooooh, $60 trillion in claims!)

No one will analyze SCO's chances of winning.

By the way, if Novell has waived SCO's rights to enforce the Sequent code, could
Novell get a preliminary injunction to prevent any further SCO legal actions
plus a gag order? Seems like the next logical step.

[ Reply to This | # ]

Yipes... this could mean ...
Authored by: Night Flyer on Sunday, February 15 2004 @ 10:27 PM EST
Quick someone find a copy of the SCO annual report.

How many of the Series A-1 Convertible preferred shares does Darl McBride,
family, and other executives own?

If I read this correctly, when certain triggers happen, (I presume a drop in
share price to a predetermined level), the company must redeem the preferred
shares up to a total of 2,863,135 shares. After that they would be redeemed for
cash... If Darl McBride et al have a significant number of preferred shares,
this might be the way they can cash out.

(Note, insider trading rules require prior notice of sale of shares, and that
the principles in the corporation need to keep vested shares for a certain
period -?? 2 years??)

This rings a few alarm bells in my head.
-----------------------------

Also relevant is something I noted in the SEC 10K filing:

Based on the GROKLAW discussion article "SCO's 10K, MyDoom, and the Morgan
Keegan letters Thursday, January 29 2004 @ 05:24 PM EST", I downloaded
SCO's 10K:
"http://www.sec.gov/Archives/edgar/data/1102542/000104746904002142/a212733
2z10-k.htm#fv1113_item_13._certain_relati__fv102134",

which starts:

"UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K, ..."

It is relatively heavy reading, but on page 13, just below the blue and white
table titled "SCO Common Stock" it says:

"On January 27, 2004, the closing sales price for our common stock as
reported by the Nasdaq SmallCap Market was $15.70. As of January 27, 2004, there
were 347 holders of common stock of record."

My Comments:

Firstly, "There were 347 holders of common stock of record." I have
dealt in the stock market on and off for 33 years, and I was stunned to hear
that a major exchange would list such a thinly held stock. (Thousands of
shareholders is more typical.) Presuming that the 10K reports the truth and
presuming there is only one kind of common stock, (no other kind was mentioned
in the 10K that I could find), is it no wonder the share value can be affected
by a few trades of a few hundred shares?

It is my opinion that, if a stock is held by so few, and there is so much
focused interest and media attention (here and internationally, plus a range of
publications and on-line discussions), it would be relatively easy to affect the
stock price.

Secondly, I know 347 people. I hesitate to ask how many shareholders Darl might
know personally, and at what price they purchased common and preferred shares.
The S-3 states that there are outstanding options to purchase 3.5 million common
shares with exercise prices ranging from $0.66 to $28.00. I wonder who the
lucky ones are (at $0.66)?

Thirdly, and not the least, I thought there were minimum listing standards,
about the number of shares and the distribution amongst enough shareholders to
make a market with frequent buyers and sellers. I recognize that the
"Nasdaq SmallCap Market" may have less stringent rules than Nasdaq
National Market", but the current situation is, in my opinion, an
unreasonably thin market.

I feel that this part of the matter needs further investigation by Nasdaq, and
maybe the SEC should peek at it too.

My clan motto says it all, unfortunately it sometimes takes a while to take
effect:
---------------------
My clan Motto: VERITAS VINCIT ! (Truth Conquers)


[ Reply to This | # ]

Chapter 11 groundwork?
Authored by: Anonymous on Sunday, February 15 2004 @ 10:30 PM EST
Suing end users? Where have we heard that before?

Seems more like a foundation for Chapter 11.

[ Reply to This | # ]

End-user protection strategy
Authored by: Anonymous on Sunday, February 15 2004 @ 10:46 PM EST
I do not think SCO is going to sue end-users, at least not immediately for two
reasons:

1. In the press, SCO themselves have referred to their 2nd amended complaint
(which includes copyright claims against IBM based on the theory that IBM's
continued distribution of AIX infringes their copyrights somehow), as this being
their copyright suit.

2. In DBC's 2/11 report, they say the end-user law suit time frame has been
pushed back because of Novell's actions. I think it likely that DBC base this
analysis on something that SCO told them or hinted at.

I predict the end-user law suits will go the same way as the end-user invoicing
plan.


In any case, let's assume for a moment there is a real risk. Is there anything
an end-user can do to mitigate their risk?

I posted the following before in a nested thread (now edited for typos etc):

IANAL, so this IMHO

It seems to me that SCO's continued distribution of Linux is a major hole in any
attempt for them to sue end-users for copyright infringement.

Assume for a moment they are the copyright owner of the code that is claimed and
it is somehow infringing, and their past distribution under the GPL doesn't
count, prior to whatever date (Feb 6 2004, March 7 2003, ??)

So, by Feb 6th 2004, they are supposed to have identified all this
"infringing" code in Linux to IBM

So after Feb 6, download Linux with a GPL license from SCO's site. Make a video,
get a notary, or whatever is necessary to legally prove you downloaded after Feb
6th 2004 from their site with a GPL license attached.

How could they hope to succeed in a copyright infringement suit in this case?

As even if they are the copyright owner, and even if it was not GPLed
previously, and SCO's past distribution under the GPL was in error and somehow
doesn't count (all seem unlikely to me) - any distribution they made after Feb
6th can not be in error - and they themselves granted you a GPL license to any
code in their distribution.

And use of copyrighted material under license from the copyright holder, is an
affirmative defense to any claim of copyright infringement.

Of course, what they distribute may not exactly match what you have in your own
Linux environment, but in this case, it radically limits what they can claim
copyright infringement on - they can only sue you for stuffwhich is not in their
distribution (i.e. stuff which they haven't granted you a GPL license to use).
And again, they are supposed to have fully identified in court before Feb 6,
what they claim as theirs, at least in Linux versions which existed at that
time.


[ Reply to This | # ]

SCO's February 11 SEC S-3 Filing
Authored by: Anonymous on Sunday, February 15 2004 @ 11:08 PM EST
Suing an end user? How quaint. How utterly futile as well.

As there is, by preponderence of evidence, doubt as to whom actually owns the
patents and copyrights pertaining to a particular brand of Unix, an end user
respondent need only move a court to either (a) hold in abeyance or (b) dismiss,
with SCO group paying costs and reasonable attorney fees, until the SCO group
vs. Novell suit has been exhausted.

krp

[ Reply to This | # ]

DMCA Claims
Authored by: Ruidh on Sunday, February 15 2004 @ 11:12 PM EST
SCOX's DMCA claims are as much bunk as anythiung they've come up with so far.

Here's a link to <a
href="http://cyber.law.harvard.edu/openlaw/DVD/1201.html">the DMCA
as enacted</a>.

It includes prohibitions on circumventing access controls, takedown provisions
for internet distributors, required Macrovision on certain video output devices
and prohibitions on removing certain copyright management information.

SCO might try some takedown actions against people who distribute Linux online.
Let the lawyers state under perjury that they represent the copyright holders. I
wonder which of their lawyers has the huevos to sign that statement.

They might try the "Our copyright notifications were removed
from the Linux ABI header files." but it seems to me their only action is
against the people who actually did it. But that might not stop them.

At this point, SCO is the legal equivalent of a rabid dog. Someneeds to take SCO
outside and put it and us out of our miseries.

[ Reply to This | # ]

  • DMCA Claims - Authored by: Anonymous on Monday, February 16 2004 @ 12:47 AM EST
SCO's February 11 SEC S-3 Filing
Authored by: blacklight on Sunday, February 15 2004 @ 11:24 PM EST
The smoke won't clear until the SCO Group makes its move, whatever that may be.
We'll coolly wait until the SCO Group throws the first punch at some hapless
user. After that, we wade in. And it is most likely that in suing that end user,
the SCO Group will have made one more mistake in a long list of mistakes that it
could not afford to make and yet did.

[ Reply to This | # ]

A DMCA win would be a Pyrrhic Victory.
Authored by: Anonymous on Sunday, February 15 2004 @ 11:30 PM EST
DMCA lawsuits against end users has got to be one of the most stupid strategies
yet.

What makes Linux (or Unix) useful to an end user is not the kernal, it's all the
utilities and tools that come with the system. For SCO to win, they need to
discredit the GPL and undo prior actions of the company under some novel legal
theory. Assuming they could actually do that, for a worthwhile Unix
distribution, they would then need to license all the other GPL'd code or risk
massive DMCA violations themselves. I doubt they would get any co-operation,
probably just a string of copycat DMCA lawsuits naming SCO as defendant. Hey, if
it works for SCO, the precedent is set.

In any case, it looks like the end of SCO is near. Too, bad, but it is just
another example of a greedy top management with a get-rich-quick-mentality
destroying an otherwise good company.

[ Reply to This | # ]

Suit against end users?
Authored by: Anonymous on Sunday, February 15 2004 @ 11:31 PM EST
Novell may have something to say about their cash flow interests if SCOG sues a
license holder.

[ Reply to This | # ]

A theory...
Authored by: Anonymous on Sunday, February 15 2004 @ 11:53 PM EST
The SCO suits are good for everybody. Granted, there's a big headache right now
for all parties involved, but let's look at what will happen in the future.

The SCO Group is a sinking ship. Even their management admits this. If they
were to whither away silently, all assets would be liquidated, to pay off their
creditors. As often happens with insolvent software companies, some bank ends
up owning the source.

However, if they bring various suits, then all these questions about who really
owns UNIX are brought into the spotlight. The GPL may very well get a test in
court. In the end. Even the DMCA may get a ruling in this mess.

[ Reply to This | # ]

  • A theory... - Authored by: Anonymous on Monday, February 16 2004 @ 01:57 PM EST
SCO isn't going to sue anybody
Authored by: Anonymous on Monday, February 16 2004 @ 01:17 AM EST
They've lied about this for months. Many months. If they sue an end user, the case will be dismissed pending the outcome of the Novell suit. They know this.

Anybody remember the SCO countdown?

http://www.scocountdown.com/

Where they promised this time they are really, really, cross their heart, hope to die serious.

Sure they are.

You may protest "wait this is an S-3 filing! They can't lie there!" - sure they can, you can always exaggerate risks, what gets you in trouble is when you downplay them.

Make no mistake about it, this S3 is for our consumption.

[ Reply to This | # ]

  • The last pump - Authored by: Anonymous on Monday, February 16 2004 @ 02:56 AM EST
    • The last pump - Authored by: Anonymous on Monday, February 16 2004 @ 12:15 PM EST
      • The last pump - Authored by: Anonymous on Monday, February 16 2004 @ 01:51 PM EST
      • The last pump - Authored by: Anonymous on Monday, February 16 2004 @ 08:15 PM EST
Nice one
Authored by: Anonymous on Monday, February 16 2004 @ 01:28 AM EST
SCO: Your honour, this person made copies of the Linux kernel, which include our
copyrighted work, and without our permission. We demand they pay damages.

Judge: What do you have to say for yourself?

Defendant: Your honour, I have recived this software from my distributor. I have
checked the licence attached to it and it says I'm allowed to do this. I have
further checked and both SCO and Novell, which are in dispute over who actually
owns the software that's supposedly inside Linux, have released it under the
same licence. I actually went and checked the files inside Linux and copyright
notices say that this software is owned by IBM. I have asked SCO what's
infringing so I can remove it and they wouldn't tell me.

Judge: SCO, what do you say to this?

SCO: Your honour, the licence that the defendant talks about is invalid. It is a
contract and those are only enforcable if the people are privy to it. It is even
unconstitutional.

Judge: Defendant?

Defendant: Your honour, SCO themselves still distribute lots of software under
this same licence. They even modify that software to suit their proprietary
operating systems. Can I approach you honour?

Judge: Sure.

Defendant: [Shows URL and list of GPL-ed software from SCO web site]. It's all
here your honour. I don't know what they are talking about.

Judge: Look SCO, I had just about enough of you. You can't prove the software is
yours, copyright notices say it isn't yours and you won't tell the defendant
what's infringing. Then you have the audacity to claim that the copyright
licence you use yourself is invalid. GET OUT OF MY COURTROOM NOW AND BE HAPPY I
DIDN'T THROW YOU IN JAIL FOR CONTEMPT!

[ Reply to This | # ]

Comparison to Jan 16 version
Authored by: Scott McCallum on Monday, February 16 2004 @ 02:15 AM EST
Giday All,

Seeing the changes in the SEC filings is very illuminating. I downloaded the Jan
16 and Feb 11 filings as RTF, removed the page numbers in Word, saved as text,
then used Araxis Merge to produce a list of differences…

You see all the changes in detail at:

http://www.intermine.com/sco/SEC-Jan16-vs-Feb11.html

If you think its useful, would appreciate it being mirrored somewhere else, its
about 600K of HTML…

Thanks for all the efforts to date,

Scott.

[ Reply to This | # ]

I had a dream...
Authored by: piskozub on Monday, February 16 2004 @ 02:19 AM EST
I had a dream. Well not literarly, but licencia poetica [the poets' IP?] allows me to say that. I was in the Middle Earth and saw Saruman speaking from the Orthanc tower:


Saruman: A new power is rising. Its victory is at hand!
{The army cheers and roars.}
Saruman: This night, the land would be stained with the blood of Linux!
March to end users! Leave none alive!
{The camera keeps zooming out from the balcony over the incredible size of Saruman’s army, past Uruk-hai, spears, and banners and yet more Uruk-hai. The camera focuses back on Saruman who then raises his hands in the air}
Saruman: To court!!
{The army cheers and roars even louder.}
Saruman: {Sneers} There will be no dawn for Open Source.


Paraphrased after The Two Towers. Movie Transcript

[ Reply to This | # ]

If SCO's sues GOOGLE
Authored by: Anonymous on Monday, February 16 2004 @ 04:36 AM EST
It would be very interesting to see SCO go after Google.
Greed can be detrimental. Pick on the wrong company and it will cause nothing
but headaches. Google like IBM and Novell have very deep pockets. I doubt Google
will give in to SCO demands without a contesting the legitimacy towards their
claims.
As mentioned numerous times before, a case like this will drain SCO's FUD
account leaving them in a no win position.

I can't wait to see which companies SCO sues on February 18th.

[ Reply to This | # ]

SCO don't own the UNIX trademark
Authored by: Anonymous on Monday, February 16 2004 @ 05:31 AM EST
basically is a fight over the right to market a product under the 'brand name' UNIX. With or without that brand name, SCO still has exclusive rights to market the product we commonly refer to as UNIX.

No. The UNIX trademark is owned by The Open Group. See here.

The Open Group (formerly X/Open?) is an organization that defines the standard programming interfaces for UNIX programs. Linux implements these interfaces, that's why it resembles UNIX so much. If you have made an implementation that adheres to the standards as defined by the Open Group, you may be certified by them and get the right to use the UNIX trademark.

[ Reply to This | # ]

SCO's February 11 SEC S-3 Filing
Authored by: Anonymous on Monday, February 16 2004 @ 05:32 AM EST
I am astonished that SCO claims to be negotiating with the claimants concerning
the restraint order in Germany or that they think about appealing it.

IANAL, but as an Austrian company owner I am quite familiar with administrative
law and I know that German administrative law works very similar. The remark
about negotiating with claimants does not make real sense since there is nothing
to negotiate. However, it is even more astonishing that they write about
apealing the fine. They have appealed the motion for injunction - result: The
injunction was reaffirmed by a second court. Nevertheless they violated it with
the result of being fined. In Austria (and likely in Germany) one has to appeal
within 4 weeks after the fine was issued. If you do not appeal within time, all
regular judical means are forfeited.

[ Reply to This | # ]

The German Front
Authored by: john hrdo on Monday, February 16 2004 @ 05:36 AM EST
> Several entities in Germany have obtained temporary
> restraining orders in Germany precluding our German
> subsidiary, from making statements in Germany that, in
> substance, disparage Linux, or entities involved in the
> Linux industry, or implicate Linux as infringing our
> intellectual property rights.

Those temporary restraining orders are not temporary
any longer, thery are definitive since SCO missed the
deadline (6 months) for appeal.


> SCO GmbH has received an administrative fine of 10,000 Euros
> for a technical violation of one of the temporary
> restraining orders. We are currently negotiating with the
> various claimants in Germany over the temporary restraining
> orders and are evaluating whether we will appeal the
> administrative fine.

SCO has been talking about appealing the fine since August
2003 when it was imposed. Nothing happened so far and the
deadline for appeal will soon be over while they are
evaluating and evaluating. Note that the fine was not
imposed automatically, there was a court hearing about it
and SCO lost out.

And they are negotiating with various claimants? The
injunctions essentially said: do not badmouth Linux out of
thumbsucks. If SCO wants to produce evidence (e.g. the Unix
System V code allegedly present in Linux) nothing and nobody
is restraining them. I know what, they are negotiating with
themselves about what kind of FUD can still squeak through
without fines.

[ Reply to This | # ]

Front Down Under?
Authored by: jmc on Monday, February 16 2004 @ 05:53 AM EST
Wasn't Friday or Saturday the deadline that Cyberknights gave SCO? (Their
website said Saturday 13th).

Maybe they'll file shortly too to add to the fun.


[ Reply to This | # ]

SCO's February 11 SEC S-3 Filing
Authored by: blacklight on Monday, February 16 2004 @ 06:49 AM EST
The thought occurred to me that the SCO Group might actually sue some end users
so that it can explain away to its board of directors some incoming dismal
financial results. However, we have prepped the battlefield in our favor since
March 2003: (1) The IBM lawsuit and countersuit are going swimmingly, with the
SCO Group struggling with and holding up the discovery process; (2) the RH suit
is still on the shelf, but it is a boil on the SCO Group's butt; (3) Novell's
motion to dismiss looks like a slam dunk; (4) the SCO Group's war of
disinformation and misinformation is in tatters, what with the groklaw community
shadowing the SCO Group's every move and dogging its every step and passing
legal ammo to IBM, RH, Novell and SGI by the crate; (5) OSDL and OSRM are up and
running while Novell sent UnitedLinux crashing on top of the SCO Group; (6)
Novell may take away in short order the SCO Group's AT&T UNIX codebase
licensing business for breach of contract. The SCO Group's Unixware customers
are probably firming up plans to leave the sinking ship, even as we speak. I
don't know what Judge Wells told the SCO Group in chambers, but the drying up of
the SCO Group's running commentary is affecting the conduct of their war of
disinformation and misinformation.

A SCO Group lawsuit against end users? As Julius Ceasar might have said after he
had taken the opportunity to thoroughly prep the battlefield with pungi sticks
before the arrival of the Gauls' 100000-man cavalry: let them come. It's all
over, but for the dying.

[ Reply to This | # ]

SCO's February 11 SEC S-3 Filing
Authored by: Anonymous on Monday, February 16 2004 @ 06:55 AM EST
Surely SCO cannot seriously want to go into a court against an end-user
organisation?

It seems to me that given the disupute between Novell and SCO about ownership,
and the absense of any evidence of material copyright infringement it would be
astonishing if a Judge found in SCO's favor.

Surely if SCO's first case against a user gets thrown out after a day then SCO's
attempts to get other users to pay up will be killed instantaneously?

Can anyone see an upside in SCO taking action?

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Testing the GPL.
Authored by: Anonymous on Monday, February 16 2004 @ 08:56 AM EST
This might be off base but maybe they are doing this/anything to deliberately
force a test of the GPL in court in order to declare it invalid or at least get
it amended/changed.

The last thing they would want if this was the case is to allow everything to be
dropped.

(perhaps someone else has motives to see this happen?)

They have stated time and again they believe the GPL to be invalid.

What if they get a case to stick so that it hinges on the validity of the GPL?

What would happen and who would win?

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  • Testing the GPL. - Authored by: Anonymous on Monday, February 16 2004 @ 02:11 PM EST
    • Testing the GPL. - Authored by: Anonymous on Monday, February 16 2004 @ 02:21 PM EST
Death by Lawsuit?
Authored by: Anonymous on Monday, February 16 2004 @ 09:39 AM EST
Remember that Boies primary field of legal representation is helping keep CEO's out of jail when their company gets into a fight with the SEC!

Do you get the feeling this is now a stock scam with the sole purpose being flush as much money to insiders as possible? Insiders have sold between 3 and 10 million, far more than possible before the legal stuff started!

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SCO's February 11 SEC S-3 Filing
Authored by: jccooper on Monday, February 16 2004 @ 03:21 PM EST
If the end-user suit speculation is true (and I'm not holding my breath) then
perhaps it's a way of proving "special damages" in the Novell suit?

The defendant's lawyer says "Your Honor, we believe this lawsuit to be
premature as there is currently dispute over whether the plaintiff has any title
to anything."

And just like that, Novell's "cloud of ownership" has caused SCOX
damages in its primary business: stupid legal actions.

Sure, it's circular and backwards and all kinds of stupid, but it sure would be
clever. Can't wait to see what they come up with to try to prove malice.

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Okay, where's the letter?
Authored by: Anonymous on Monday, February 16 2004 @ 03:49 PM EST
If this is true:

"Additionally, we have begun notifying selected Linux end users in writing
of violations we allege under the Digital Millennium Copyright Act related to
our copyrights contained in Linux."

Has anyone gotten a copy of one these letters? Is this something new, or are
these the ones from what seems like a century ago when they were mumbling that
dribble about errno.h? That's been pretty thoroughly debunked, that's why I
thought they were talking about something new, but maybe not.

Even if you buy into the unlikely possibility that McBride actually believed
early on that they had some kind of case, these guys have to know they're jacked
by now. What's the point of dragging everyone through this pathetic exercise?
Extorting companies for license fees isn't going to work and they don't have a
chance in court. They could've taken the cash they had on hand and come up with
a new business model, but now they're hosed. This is all so stupid and such a
waste. It's gone totally beyond anything rational at this stage.

Another thing that irks me. If MS and other proprietary software companies were
going to mount a serious challenge to OSS/FOSS, you'd think they could've picked
a better champion. I feel insulted that the most worthy opponent they could
come up with is Darl McBride and SCO, with a little backup singing from Didio
and Forbes. Talk about the B Team. How stupid do they think people are? Guess
it's not so hard to understand when you look at how many people still support
Bush.

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What happened to the NDO code?
Authored by: Anonymous on Monday, February 16 2004 @ 04:11 PM EST
Why does SCO need AIX source code? If the code that they showed Laura Dido and
others under an NDO is so conclusive, why do they need IBM's code? What code
did they show under the NDO? (Not that you would know unless you signed it, and
then you couldn't say) First they have conclusive proof, but they won't tell
you unless you sign an NDO. Now they can't get proof until IBM shows them what
code in linux belongs to them.

Can IBM bring this up (along with MIT mathematicians and all the rest) in court?
Seems like what SCO has been stating publicly changes more than my underwear!

Also, has the judge made a declaration about SCO being in compliance yet?

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End user lawsuits and slander of title?
Authored by: Anonymous on Monday, February 16 2004 @ 04:34 PM EST
This is possibly far-fetched, but... one of the objections to
their slander of title lawsuit against Novell was that they could
not show specific damage they had suffered as a result of
Novell claiming to own the copyright. Now, if they sue a
Linux end user and that user replies (suitably translated
into legalese): "Get lost. Not only does Linux not contain SVR4
code, but you probably don't own it anyway", would this
strengthen their case against Novell (ignoring the other
thorny question of what if anything they own)?

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SCO's February 11 SEC S-3 Filing
Authored by: Anonymous on Monday, February 16 2004 @ 07:21 PM EST
I don't know what the law is in the US but I thought it a generally held
principal that you could not sue someone for buying something in good faith. For
instance you buy a new car from Company A which has a fancy new widget in it
that improves fuel efficiency by 20%. If Company B finds out that said widget
was their invention they can only go after Company A for compensation. So if I
buy Suse 9 in the belief that Suse/Novell are acting in good faith then SCO
cannot sue me but must instead go after Suse/Novell.

I am surprised no-one else has brought this up yet. Either that or I have not
read it

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SCO's February 11 SEC S-3 Filing
Authored by: Anonymous on Monday, February 16 2004 @ 11:33 PM EST
I could have told you it was bad news without even looking at it because they
filed it on a day the market is closed!

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Suing users as a strategy
Authored by: Anonymous on Tuesday, February 17 2004 @ 02:37 AM EST
IANAL, so I maybe my fears have no bases but...
is it possible SCO plans to sue an easily annoyed user (maybe one with whom they
have big Unix contracts with) and have it settle without going in court? (maybe
even with low or no money gain at all)
They could then try to present the fact as a "public acknowledgement"
of their rights in Linux code to use as leverage in media and to influence court
in the current cases...

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SCO's February 11 SEC S-3 Filing
Authored by: Charles Pouliot on Tuesday, February 17 2004 @ 11:56 PM EST
Since this was the closest related article I could find,
I decided to post this here. I thought it might be useful,
particularly in terms of discussions of this nature.
(PJ, you are free to use this as you wish on groklaw.)

To introduce myself:
I am a Linux enthusiast who, with a little spare money,
bought 503 shares of Caldera / SCO stock back when it was
worth about $1.30 / share or so. I wound up with an an odd
lot precisely because of the thinness with which the stock
was traded. I sold my 500 shares in the $2-4 range.
When the stock price suddenly jumped up to $9, I really
got concerned, and since I had 3 shares left, I went to
investigate and found out what was going on, and,
needless to say, I did not like it. I would like to point
out that at last year shareholders' meeting, Caldera
insisted on changing its name back to SCO. And it was on
the heels of that meeting that SCO entered its suit against
IBM. I am real new to all this stuff, but I knew the least
I could do was enter a resolution to the next shareholders'
meeting. I am not a stock guru, and this proposal fails
on nearly every count, but a copy naturally was sent to
the SEC, and it might have given SCO some ideas. It is
only fair that all of us share these ideas, too.
Interestingly, I submitted this proposal in October and
did not receive a reply until mid-January (not that it
would have mattered, but it struck me as odd, given SEC
rules).

BTW, I have been bravely resisting the urge to short SCO
since about mid-Janary when they were originally supposed
to turn over their stuff to IBM. Even though I have zero
inside information and am only using the grey matter between
my two ears, I find it ethically objectionable to do such
a thing, though the risk involved is also a good reason not
to (especially as shown by the continued dragging out of
this lawsuit).

Here, then, is the text of my proposal:
RESOLVED, that the shareowners of the SCO Group, Inc. (hereinafter `SCO')
hereby urge that the Board of Directors and senior management of SCO take
whatever steps necessary to cause the company to promptly cease and desist
from all lawsuits, threats of lawsuits, and supposed legal claims with
respect to copyright, patent, proprietary rights or any other form of
intellectual property, in any form, with respect to the Linux operating
system (hereinafter `Linux'), or any version, form, or derivative of Linux.

We also request that SCO apologize to the entire Linux industry by way of a
statement on their web site, and by email to all parties against whom any of
the above actions have been taken.

Supporting Statement:
The use of unsubstantiated legal claims to demand money from others has to
be one of the most despicable, unethical, and irresponsible business
practices yet invented. Statements which provoke fear, uncertainty, and
doubt, are threatening to undermine the Linux software industry, in which
SCO once claimed to be a participant and supporter, when we committed to
investment in SCO, then known as Caldera International. Now, instead of
participating in the industry and supporting Linux through honest
competition in the marketplace, it is attempting to destroy it. Whereas,
SCO has made vague accusations of legal liability.
SCO has showed limited evidence (i.e., code resemblance) which
falsely suggests that their lawsuit has substance, but refuses to provide
definite evidence or make precise claims (for which they would obviously
bear responsibility); which could easily settle the issues at stake; for
example, SCO won't admit that sections of code in question were not copied
from UNIX, nor specify sections of code that were copied so they can be
removed.
Numerous companies have demonstrated the baselessness of SCO's
intellectually property claims, by indemnifying their customers, and
publishing legal and commercial documents relating to SCO's lawsuit.
Early on in this activity, Microsoft Corporation, the well-known
former monopoly, which Linux is now threatening and competing with, paid a
substantial sum of money to SCO; SCO cannot honestly support Linux when they
are financially subsisting on a monopolistic competitor; simply put, it is a
conflict of interests.
In essence, SCO is demanding money from Red Hat and other Linux
businesses, without producing actual evidence that SCO is owed anything.
As a result, SCO is undermining the Linux operating system and the
entire computing industry, which depends upon the healthy competition it
creates in the operating system market.
Furthermore, SCO's activities have caused a severe instability of
their stock price and made it a target for speculation, which is against the
interests of sound investment and business strategy.
It is not our wish or purpose to remove any genuine legal rights SCO
may have, in particular, its contractual claims with IBM, some of which do
appear to be valid; only that they drop all legal claims and all suggestions
of legal claims for which they do not promptly provide prima facie evidence.

Notwithstanding the self-interested recommendations of the directors
of SCO, we urge all shareowners to vote for this proposal.

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Apocalyptic Language
Authored by: Charles Pouliot on Wednesday, February 18 2004 @ 12:03 AM EST
PJ asked about "apocalyptic language" in SEC filings:
" I thought it would be useful to look at some other companies and see
if maybe I was reading too much into this language. Did others
describe their risks in such apocalyptic terms? Maybe this is normal
in the risks section, I thought."

Of the companies I researched, the only company I found
with similar apocalyptic language was Cray, Inc.
(NASDAQ:CRAY)
The use of "apocalyptic language" is normal where the financial
basis of the company is irregular, not steady, unpredictable,
uncontrollable, etc.

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